High-end House Market and US Treasuries

Now it is the turn for high-end houses and prime mortgages.

Today's Headline:

12 pct. are behind on mortgage or in foreclosure

Delinquencies and foreclosures set record in 1st quarter, driven by prime loan defaults

A couple of months ago, some suggested moving up by buying good school district and letting go their current homes (by foreclosure?). Those who followed this advice would be burned severely today. It would be as stupid as selling an asset at 30% discount to buy another in the same asset category at only 15% discount. It is no surprise that high-end market are catching up with the low-end to fall another 10%.

I did suggest to a friend to sell his small, old, but pricey Palo Alto house to buy a big house in San Jose or Fremont. It may be late now. Palo Alto house market is in stand-still though the price has not fallen dramatically from the peak.

Now the interesting question is:
Will Obama come to the rescue of troubled million-dollar-home owners on California coast? How many tax payers or mortgage bond holders or both have to be robbed to bail-out one such family? Washington has been breaking contract laws -- the very foundation of free market and capitalism to save the "debtors". It is not surprise that our government of democracy is on the side of debtors when our nation as a whole is a nation of debtors.

Just this week, creditors slapped the face of US government by saying "enough is enough" on long-term treasuries. The 10 year treasury rate is close to 4% now. "What goes around, comes around". It happens so fast, even before GDP in any major economy shows any signs of recovery.

When a nation's government public encourages its citizens to default on mortgage contracts (as in the loan modification conditions in the house rescue plan), will bond investors trust that government to honor its own debts by

(1) Repaying the debts on time, and
(2) Keeping denominating currency (US dollars) afloat.

Go figure!